Employers announce the end of centralised tripartite bargaining structure

The Confederation of Finnish Industries (EK) has announced that sectoral, company and even individual-level bargaining will be the negotiation models of the future. EK has for a long time argued that the solidaristic wage policy offering equal pay increases to every branch of the economy and employee group has come to an end. With the renouncement of the centralised bargaining model, trade union confederations will be compelled to intensify their cooperation.

Forty-year history of centralised bargaining

The national incomes policy agreement (tulopoliittinen kokonaisratkaisu, often called tupo) is a tripartite accord drafted by the government together with trade union confederations and employer organisations. It is a policy document covering a wide range of economic and political issues, such as pay increases, taxation, pensions, unemployment benefits and housing costs, as well as a range of qualitative working life measures. The agreement represents collective bargaining taken to its logical maximum, covering virtually all wage earners. Enforcement of the agreement has been made easier by the general binding of collective agreements.

Through the centralised national income policy agreements, the social partners have tried to reach a common understanding of the best choices for the national economy in terms of economic growth and real wages. In general, the government wants to keep national competitiveness and the employment rate high but also to ensure sufficient tax revenues and keep inflation under control. The last two agreements for 2003−2004 and 2005−2007 offered relatively moderate pay increases, with the government’s tax cuts representing an improvement in terms of employees’ purchasing power (FI0211102F, FI0501203F).

Turning point for collective bargaining structure

The era of centralised incomes policy agreements dating from the so-called ‘Liinamaa I’ agreement in 1968 seems to be coming to an end in the Finnish labour market. The Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK) has announced that branch, establishment and even individual-level bargaining will be the negotiation models of the future.

EK’s message to the government and to the trade union side has for a long time been that the solidaristic wage policy offering equal pay increases to every branch and employee group is out of date and has reached its natural conclusion. EK has decided that, when its current Director of industrial relations, Seppo Riski, retires, the industrial relations unit will be discontinued so that the employer confederation will no longer have a special department for centralised negotiations. Thus, EK will consolidate the required labour market negotiation policy through its own organisational structure.

EK has argued that the bargaining structure in Finland has been too centralised, and also that the ‘pay norm’ whereby the average productivity growth rate determines wage rises in all sectors should be scrapped. Instead, the employer organisation has endorsed a system in which the rate of productivity growth in each sector would determine its particular level of pay increases (FI0408202F). Furthermore, more scope should be given to performance-based wages in company-level bargaining. These objectives were largely achieved during the last sectoral bargaining round in the autumn of 2007 (FI0803019I).

Calls for closer cooperation among trade union confederations

The trade union side has criticised the position taken by EK, highlighting that Finland recovered from the deep recession of the 1990s through the use of centralised incomes policy agreements.

According to the President of the Confederation of Unions for Academic Professionals in Finland (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA), Matti Viljanen, EK has taken on a strong role as an ‘alteration worker’ in Finnish society and particularly in the Finnish labour market. Mr Viljanen regrets that EK has decided to abandon entirely the centralised bargaining model. Moreover, the AKAVA president underlines that the EK’s new policy definition will require much stronger and closer cooperation among trade union confederations than previously.

The Director of the bargaining department within the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Lauri Lyly, agrees with Mr Viljanen’s argument of requiring closer cooperation within the trade union side. As the next sectoral bargaining round will take place in two years’ time, Mr Lyly believes that the trade union confederations will need to start joining forces to improve their coexistence and coordination efforts by next autumn.

Mr Lyly concedes that a centralised bargaining model is not entirely required as a tool for coordination, but highlights the important aims achieved by using the centralised model. Protecting employees’ purchasing power and predictability have been the undisputable merits of the centralised bargaining model. Against this background, Mr Lyly queries whether the employers are no longer worried about the inflation rate. Moreover, he highlighted that negotiations on the qualitative measures of working life have a poorer success rate at sectoral level. According to Mr Lyly, the most recent comprehensive incomes policy agreements have shown that notable qualitative issues can only be resolved at confederation level.

The President of the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), Mikko Mäenpää, emphasises that STTK-affiliated trade unions have considered the centralised bargaining model advantageous, even though the terms of the most recent sectoral collective agreements were more favourable to STTK-affiliated unions. Mr Mäenpää believes that EK’s new policy definition will pay less attention to macroeconomic aspects by focusing too much on the success of companies.

Tripartite cooperation continues for working life legislation

An emerging trend during the most recent incomes policy agreements was the so-called continuous negotiation system. Under this system, the social partners took charge of different kinds of joint projects and working groups during the agreement period. By the system of continuous negotiation, the signatory parties launched several mutual projects to improve working life. The framework of working life can be enhanced through joint development projects and by highlighting best practices. The scope of the continuous negotiation system also includes matters that should be considered on a bipartite basis between employer and trade union representatives or on a tripartite basis, encompassing the government as well.

During the previous incomes policy agreement for 2005−2007, which was historically an exceptionally long-lasting agreement, a total number of 23 bipartite or tripartite working groups were defined. Some of these groups were new, while others were follow-on projects to previous groups. Working groups have been set up to deal with a range of issues, including: employment opportunities, contractor responsibility, control of the illegal economy, ‘flexicurity’, local bargaining and working time accounts, enhancement of operating conditions for shop stewards and promotion of equal opportunities in working life (FI0701029I).

Mr Lyly of SAK also emphasises that, although the tripartite model might be disappearing in wage bargaining processes, tripartite cooperation will still remain in working life in relation to the drafting of laws. In 2007, despite the sectoral negotiations, a joint round table on productivity with representatives of all labour market organisations was established. The aim of the body is to promote cooperation between the country’s labour market organisations regarding issues such as productivity and quality of working life in Finland (FI0804039I).

Commentary

The future of tripartite bargaining has been regularly called into question in the Finnish labour market, particularly by the employer side (FI0703059I). However, it now seems that the traditional centralised Finnish model of wage formation is at a turning point. EK’s renouncement of the centralised bargaining model is a clear sign of this development. EK has for a long time tried to find a balance between the stability and sustainability offered by centralised incomes policy agreements and the growing need of binding pay increases for productivity and competitiveness of the sectors, individual companies and individual pay settings. More recently, it seems that the model of equal pay increases is considered too rigid in the globalised economy.

However, some commentators have pointed out that the connection between productivity and general pay increases also works the other way around. When companies with low productivity have had to increase wages to the same extent as companies with high productivity, those poorer performing enterprises were forced to consider how to intensify and rationalise their operations.

Pertti Jokivuori, Statistics Finland

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